Author: Wang, Ruochen
Author: Wang, Xuan
This paper examines the factors affecting bank profitability. We use a sample of US banks over the period 2002-2014, and measure profitability using both return on assets (ROA) and return on equity (ROE). We find that banks have higher profitability when they have: (1) a lower loans to total assets ratio, (2) a lower customer deposits to total liabilities ratio, (3) a lower nonperforming loans to gross loans ratio, (4) higher efficiency, and (5) higher revenue diversification. We also find that better-capitalized banks have higher profitability, but only when we measure profitability using ROA. Finally, we find that the relationship between several variables and bank profitability differs across banks of different size and over different sample periods.
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